Budget Blues

Next time you're reluctant to ask a prospect about budget, remember: It isn’t just about you

June 27, 2017

This spring, my wife, Elaine, and I bought a home that needs remodeling before we can occupy it. We researched online and found a design-build company whose aesthetics, craftsmanship, and philosophy we liked. The day after closing, we met with them at the still-empty house for a walk-through, during which we discussed our goals for the project, design fees, scheduling, and other relevant topics. The next day, we signed an agreement for a feasibility study that would result in a conceptual design and rough construction pricing. We were off and running and feeling good about the project.

Now, two-and-a-half months later, after a great deal of work for us and for the remodeler, we are back at square one because the cost estimate was so much higher than our budget—three times higher—that no amount of pencil sharpening and scope-reducing could bring it down enough.

How did that happen? The simplest answer is because no one asked about budget at that first meeting. Like most homebuyers, we did, in fact, have a rough budget in mind. Obviously, we had a list of what we wanted to remodel, but because we’d completed both an energy audit and a home inspection before closing, our budget included new heating and electrical systems, things that might escape the attention of homebuyers focused only on kitchens and baths. We also considered how much investment made sense for this house in this neighborhood given what we had paid for it, knowing that it would be years before we could recover our costs in a resale.

By the end of that first meeting at the house, we had shared most of that information with the remodeler. But because they never asked about either our budget or how we intended to finance the project, they didn’t know how much we were expecting to spend.

I think both sides made incorrect assumptions. Given our age and the fact that we talked about how this would likely be the last house we would ever buy, maybe the remodeler assumed that price was no object and that resale value wasn’t a concern. To be fair, we didn’t volunteer a number either. Maybe we assumed that, because budget never came up at any point during the walk-through, they had made the same calculation about total investment and resale value. Regardless, we had our own agenda and a lot to communicate to them in a short time, and we didn’t notice the missing budget question.

No Blame

My goal here is not to point a finger—I am as much to blame as anyone. But this experience from the homeowner side of the kitchen table points up something that is easily overlooked when remodelers talk about the need to know the budget. We all agree that remodeling is not a commodity, that costs vary from company to company for a host of reasons, not just scope of work and material selections, but also level of services provided, subcontractors used, cost of labor, speed of construction, etc. When it comes to knowing a prospect’s budget, remodelers typically look at it as a way to avoid wasting time pursuing prospects who have unrealistic budgets or who simply can’t afford their services. That makes sense, but what often gets overlooked is that an early discussion about budget is equally important to the homeowners as a way to identify a mismatch.

As remodeling customers, Elaine and I have gone from excited and encouraged to anxious and dejected. We have a design we like and a pretty thorough (but still too high) cost breakdown for the project, but time has been wasted, and completion dates have been pushed back. Maybe our project is more expensive than we think, or maybe we can’t afford the services of the remodeler we had hoped to work with. The point is, we might have discovered that two months ago and taken a different direction.

Next time you are reluctant to ask a prospect about budget, remember: It isn’t just about you.

Comments

Comments

The homeowner's first error was to interview a design build firm. If a homeowner really wants to get a true budget, the best possible direction is to hire a design professional and have a proper scope of work created. The scope of work can then be bid by several contractors. I encourage all clients to scope the "Dream" then take out what doesn't fit in the budget - this way the homeowner is in control. Share the budget with the designer - not with the contractors. Several bids will make a client feel more comfortable with the scope of work and pricing.

Great article Sal, I wholeheartedly agree that consumers and contractors should have the budget discussion early on in the relationship after the consumer has shared the desired wants, needs and wish list of projects. To go down the design route unencumbered by a budget range, often leads to the disappointments you shared. The homeowner wasted time with a remodeler and design and the remodeler and/or designer got paid for a design that will not be built as designed or maybe not at all.
Remodelers who know their business should be able to guide a consumer on general ranges for remodeling projects once a thorough needs assessment and home viewing is done.
Early on in my design build selling career I failed to give a consumer a budget, ask him for one, received money for a design and presented a scope of work and contract for a price that was way over his desired budget. He was deflated and unhappy. He said if you had shared a budget range with me early on both of us would have saved significant time. He then added "I would not have wasted money on a design that lead to a price over my available budget"
A good way for consumers to check in on average costs of projects is to check out average costs on Cost versus Value reports provided by several trade magazine companies and sites like Houzz.
Regarding the comment form Mr. Young I totally disagree that a consumer should call a designer or achitect first and then bid it out to several contractors. That approach is the biggest waste of time for consumers and contractors alike. However the designers and architects get billable hours for projects that are often over budget and the plans are usually incomplete.
I am a proponent of the Design/Scope development and Build approach. This is where the consumer works with a firm who does the design, the scope development, product selection guidance and then builds it. This firm may have a designer on staff or work in a symbiotic way with an design professional form the concept stage.
Homeowners who work with designers or architects without a stated budget range usually end up with overdesigned and over priced jobs.

We have a house on the market with $30,000 of unexecuted architectural plans in it. We wanted a house less than $1 million, we ended up with a $1.6 million budget that I knew we would never build. I feel bad that a high – end builder had to go to subs and get all of those bids that added up to $1.6 million but the thing really got away from us. We were still living in our former home almost 1000 miles away and we had this architect in our new state going nuts. He was a nice man, don't get me wrong. Our kids went to the same school. In the end we simply redecorated the house with a new front door, new floor surfaces, new colors on the walls and new hardware everywhere, doors faucets etc. We did a master bath remodel. In all we ended up spending less than $50,000, all in small projects with a nice small contractor. It's on the market and we are moving on. Next time we will get a design/build firm and we will have a strict budget going in.